Canada sees progress on NAFTA auto rules; steel tariffs loom

WASHINGTON (Reuters) - Canadian Foreign Minister Chrystia Freeland said on Wednesday that good progress has been made at the NAFTA trade talks on the key issue of auto rules, though the threat of proposed U.S. steel and aluminium tariffs coming into force next week clouded the mood.

Canadian Foreign Minister Chrystia Freeland speaks with reporters after meeting with U.S. Trade Representative Robert Lighthizer to discus NAFTA autos negotiations in Washington, D.C., April 25, 2018. REUTERS/David Lawder

Freeland, U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo met for a second straight day in a push to seal a quick deal on revamping the North American Free Trade Agreement.

“There is a very strong, very committed, good-faith effort for all three parties to work 24/7 on this and to try and reach an agreement,” Freeland told reporters after talks with Lighthizer.

The bulk of talks focused on rules of origin governing what percentage of a car needs to be built in the NAFTA region in order to be sold tariff-free within North America, she said.

“I think we made some good progress. We’re very much working on a set of proposals based on the creative ideas the U.S. came up with in March and I think there was good constructive progress,” she added.

The ministers are expected to meet again on Thursday.

U.S. President Donald Trump’s negotiators initially demanded that North American-built vehicles contain 85 percent content made in NAFTA countries by value, up from 62.5 percent now. But industry officials say that has been cut to 75 percent, with certain components coming from areas that pay higher wages.

The U.S. trade representative was still pushing its proposal for wage standards for certain auto parts, a person briefed on the talks told Reuters.

This plan would set the overall regional content requirement for autos at 75 percent, but would provide more credit toward reaching that goal for final assembly and manufacturing of certain high value parts like engines in higher wage areas paying around $15 an hour, the source said.

Some lower-value parts and materials would qualify for 70 percent and 65 percent regional thresholds, the source added.

The plan aims to preserve high-value production in the United States and Canada and put upward pressure on auto industry wages in Mexico.

TARIFF, SUNSET OBSTACLES

Freeland said Canada remained opposed to the U.S. idea of introducing a “sunset clause” that would allow one of the three NAFTA members to quit the pact after five years.

“Our view is that this is absolutely unnecessary,” she said, noting that NAFTA already contained a withdrawal mechanism.

Stakeholders argue that putting such a clause in place would create uncertainty for investments.

Mexico’s negotiators are also unhappy about having to deal with the steel tariff threat in parallel with the NAFTA negotiations, a Mexican source said. The sunset clause likewise remained a sticking point, the source added.

Freeland reiterated Canada’s opposition to the proposed U.S. steel and aluminium duties. Trump unveiled the tariffs in March but suspended them for Canada and Mexico until May 1, citing the wish to see progress at the NAFTA talks.

“Canada’s position has been clear from the outset and that is that Canada expects to have a full and permanent exemption from any quotas or tariffs,” Freeland said.

Separately, Canadian Prime Minister Justin Trudeau’s chief of staff, Katie Telford, who attended some of the most recent NAFTA talks, said late on Wednesday that she would “probably” be flying back to Washington on Thursday.

Although the Trump administration has been pressing for a quick deal, several major topics remain to be settled.

Reporting by David Lawder; Additional reporting by Dave Graham and David Ljunggren; Writing by Anthony Esposito; Editing by James Dalgleish and Leslie Adler